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Technical Market Report

The good news is:
• While the market was down last week, there was no increase in the number of new lows.

Short Term

Short term, the market is overbought.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and an indicator showing the percentage out of the last 3 trading days that the NASDAQ AD line has been up (OTC ADL %UP) in orange. Dashed vertical lines have been drawn on the 1st trading day of each month.

As of Friday's close the OTC ADL has been up for 3 consecutive days, something it has done 5 other times since the early March low. In 3 of the 5 occurrences the OTC ADL went up for 1 more day prior to a short term reversal. The other 2 times the market reversed after the 3rd up day.

Next Monday and/or Tuesday are likely to be down.

Intermediate term

The next chart covers the past 6 months showing the OTC in blue and an indicator showing a 40% trend (4day EMA) of the ratio of NASDAQ new highs to new lows. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50% level. The indicator turned upward Thursday after falling sharply in the earlier part of the week. Nothing really bad is likely to happen as long as the indicator is above the 50% level.

Seasonality

Next week includes the week prior to the 4th Friday of June during the 1st year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the week prior to the 4th Friday of June during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1953 - 2008. Prior to 1953 the market traded 6 days a week so that data has been ignored. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

Monday, the day following future and options expiration, has been a consistently bad day. Otherwise, the SPX has been modestly positive during the 1st year of the Presidential Cycle, while returns have been modestly negative by all other measures.

Report for the week before the 4th Friday of June.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 -0.50% -0.11% -0.11% -0.78% -1.51% -3.01%
 
1969-1 -0.66% 0.09% -0.03% 0.09% 0.23% -0.29%
1973-1 -1.46% 0.19% -0.76% 0.21% 0.59% -1.23%
1977-1 0.11% 0.11% -0.05% 0.39% 0.49% 1.06%
1981-1 -0.44% 0.29% -0.21% 0.25% 0.21% 0.09%
1985-1 0.44% 0.80% 0.38% 0.66% 0.29% 2.57%
Avg -0.40% 0.30% -0.14% 0.32% 0.36% 0.44%
 
1989-1 -0.25% -0.34% -0.16% 0.33% 0.68% 0.26%
1993-1 -0.12% -0.29% -0.29% 0.57% 0.88% 0.76%
1997-1 -0.88% 1.26% -0.43% -0.68% 0.13% -0.60%
2001-1 -1.96% 0.21% 1.93% 1.36% -1.17% 0.37%
2005-1 -0.09% 0.14% 0.05% -1.02% -0.84% -1.77%
Avg -0.66% 0.20% 0.22% 0.11% -0.06% -0.20%
 
OTC summary for Presidential Year 1 1965 - 2005
Avg -0.53% 0.21% 0.03% 0.13% 0.00% -0.16%
Win% 18% 73% 27% 73% 73% 55%
 
OTC summary for all years 1963 - 2008
Avg -0.10% 0.02% 0.10% -0.09% -0.12% -0.20%
Win% 40% 62% 52% 60% 51% 49%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 0.50% 0.67% -0.12% 0.42% 0.08% 1.54%
1957-1 -0.78% 0.79% -0.13% 0.36% 0.23% 0.47%
1961-1 -0.92% 0.88% -0.02% -0.37% 0.40% -0.02%
1965-1 -0.34% 0.19% -0.63% -1.31% -0.60% -2.69%
 
1969-1 -0.46% 1.13% -0.32% 0.25% 0.08% 0.69%
1973-1 -1.43% 0.38% 0.43% -1.18% 0.47% -1.32%
1977-1 0.45% 0.32% -0.28% 0.16% 0.57% 1.22%
1981-1 -0.24% 1.06% -0.52% 0.11% -0.19% 0.23%
1985-1 -0.24% 0.31% 0.17% 0.62% 0.32% 1.18%
Avg -0.38% 0.64% -0.10% -0.01% 0.25% 0.40%
 
1989-1 0.17% -0.20% -0.24% 0.57% 1.76% 2.07%
1993-1 0.57% -0.06% -0.61% 0.77% 0.22% 0.89%
1997-1 -2.23% 2.02% -0.82% -0.60% 0.41% -1.23%
2001-1 -0.49% 0.34% 0.87% 1.14% -0.95% 0.92%
2005-1 -0.07% -0.20% 0.02% -1.08% -0.76% -2.10%
Avg -0.41% 0.38% -0.16% 0.16% 0.14% 0.11%
 
SPX summary for Presidential Year 1 1953 - 2005
Avg -0.39% 0.54% -0.16% -0.01% 0.15% 0.13%
Win% 29% 79% 29% 64% 71% 64%
 
SPX summary for all years 1953 - 2008
Avg -0.16% 0.13% 0.05% -0.06% -0.15% -0.18%
Win% 39% 55% 54% 53% 43% 55%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has increased sharply over the past 2 weeks. That is usually a positive for the market.

Conclusion

The market is oversold and seasonally it has done ok once it gets past the Monday following options expiration.

I expect the major indices to be higher on Friday June 26 than they were on Friday June 19.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Thank you,

 

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